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IBSA and the Aerospace Industry in Brazil. Mario Marconini South-South Economic Cooperation: Exploring IBSA (India-Brazil-South Africa) Initiative Johannesburg, 28 June 2006. Trade Balance – 1950-2004. Trade as part of GDP. Brazil: no longer the least open Similar to high-GDP countries; or,

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ibsa and the aerospace industry in brazil

IBSA and the Aerospace Industry in Brazil

Mario Marconini

South-South Economic Cooperation: Exploring IBSA (India-Brazil-South Africa) Initiative

Johannesburg, 28 June 2006

trade balance 1950 2004
Trade Balance – 1950-2004

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trade as part of gdp
Trade as part of GDP
  • Brazil: no longer the least open
    • Similar to high-GDP countries; or,
    • Countries notoriously closed;
  • 1.7 times more closed than the world average
  • 2.2 times more closed than Mexico;
  • 2 times more closed than China;
  • 2.75 more closed than Canada

Source: The World Bank, WDI Data Query

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regional trade flows 2004
Regional Trade Flows, 2004

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trading partners
Trading Partners

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brazil india
Brazil-India

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brazil india7
Brazil-India

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ibsa in relative terms
IBSA in relative terms

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brazilian aerospace sector
Brazilian Aerospace Sector
  • Aeronautics - manufacturers and suppliers in the production of civil aircraft, airplanes and helicopters, propulsion systems and electronics;
  • Defense - the production of aircraft and systems for military purposes; and,
  • Space - manufacturers and suppliers of satellites, launchers and special surveying systems both for military and non-military purposes

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brazilian aerospace sector10
Brazilian Aerospace Sector
  • One of most dynamic sectors
  • Direct relationship with national security;
  • High technological linkages and spillovers;
  • One of the country's main exporters; and,
  • Productivity levels and growth perspectives.

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brazilian aerospace sector11
Brazilian Aerospace Sector

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brazilian aerospace sector12
Brazilian Aerospace Sector

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brazilian aerospace sector13
Brazilian Aerospace Sector
  • 1941 – Ministry of Aeronautics
  • 1945 – Idea of a Aeronautical Technological Center (CTA)
  • 1946 – Organizational Commission
  • 1947 – Military Engineering in Rio transferred to São José dos Campos
  • 1950 – First ITA class
  • 1954 – CTA created, also Research and Development Institute (IPD)
  • 1969 – Embraer created as state-company
  • 1971 – Bandeirante and air force contracts start
  • 1975 – Embraer first export: Uruguayan Air Force
  • 1979 – Embraer: presence in the U.S.
  • 1983 – Embraer: presence in Europe
  • 1990 – Embraer major financial crisis; downsize 13 to 9.9K employees
  • 1994 – Privatization of Embraer

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the embraer phenomenon
The Embraer Phenomenon
  • Empresa Brasileira de Aeronáutica
  • 13,000 direct, 3,000 indirect of 18,000 jobs
  • 80% of aerospatial MSMEs’ revenues
  • Virtually all integrated with Embraer chain
  • 11 service suppliers formed a venture
  • Embraer and partners in aeronautics and defense
  • Only space: Orbisat and Orbital
  • Multi in helicopters: Helibras

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the embraer phenomenon15
The Embraer Phenomenon
  • High R&D, strategic partnerships, government support
  • Main thrust of restructuring: integration into international market for regional jets
  • Biggest Brazilian exporter in 1999-2001: over $2 billion
  • Four market segments:
    • Commercial: 37-50 seater and 70-106 seater
    • Corporate: private jets
    • Defense: same ERJ-145 platform for intelligence, surveillance, reconnaissance
    • Services: after-sale, replacement parts, maintenance
  • Commercial aviation: 70-80% of total revenues

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the embraer phenomenon16
The Embraer Phenomenon
  • Two directives:
    • to seek flexibility and competitiveness by means of the coordination of partner networks in the development of airplanes
    • to organize production according to aircraft "families".
  • Three types of partners:
    • Risk partners. supply large aeronautical systems and join Embraer's projects as investors;
    • Suppliers. do not take part in the development of projects, only supplying components and other inputs;
    • Subcontracted. SME’s created and conducted by former Embraer staff

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the embraer phenomenon17
The Embraer Phenomenon

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the survey
The Survey
  • Second semester of 2005
  • 12 firms contacted
  • Distrust with the project
    • Additional information and clarifications
    • Linkage of project to government
    • Sources of financing for the research
    • Recourse to high technology
  • Economic relevance: Embraer alone

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the survey19
The Survey

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survey findings general
Survey Findings: General
  • Positive impression re: industry future
  • Need to attract world-class suppliers
  • Space less developed than India or China
    • Develop indigenous technology
  • ½ traded with India or South Africa
  • Exports: dynamic developed markets
  • Imports: quality of products
    • Supplying firms: need for certification

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survey findings general21
Survey Findings: General
  • Aviation systems: oligopolies
  • Alternatives in India and Russia
    • Little prospecting yet
  • ¾ never heard of IBSA
  • ¼ heard of it but highly skeptical anyway
  • Embraer: exports to both
  • Aeromot: sales to S.A. but not India
  • Orbisat: sales to S.A. but not India
  • None see significant increase in IBSA business

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south south cooperation
South-South Cooperation
  • ½ – cooperation projects
    • China – CIBERS satellite
    • Russia – satellite launchers
  • ½ – France and Germany
  • ¼ - knew of India project
  • ½ – considered infeasible with IBSA
    • Embraer already has global network
    • Better to have productive chain at home

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south south cooperation23
South-South Cooperation
  • Space sector
    • Interest with India: satellite manufacture, launching technology, optical radars, image sensors, launching vehicles.
    • Interest with South Africa: military aircraft parts
  • G-20 type of grouping on subsidies
  • Technical barriers, not a problem
    • Exception: emissions and noise in E.U.
  • IBSA for bargaining technology transfer
  • Financing crucial: government could help to provide level playing field
  • Country Image: Embraer’s effect

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capabilities
Capabilities
  • Embraer: long-haul market would be a "suicide“
  • Significant political incentives
    • Radars, detection of oil spots in S.A. ocean
    • Political blockage: Brazilian government crucial
  • Lack of funding, interest, priority
    • Orbisat: Radars in Embraer’s aircrafts
  • Market access, doing business in India
    • Difficult to comprehend, decision-making hierarchies, corruption
  • Infrastructure: governmental support, unavailable funds
  • R&D: deficient in geostationary satellites and launchers
    • Lack of investment in higher education
    • High interest rates and short loan duration
  • Embraer: distances and freight not important
    • Technical requirements and high values and quantities, very important
  • Orbisat: effective partnership with India: satellites and radars
    • Lost to Israel in India due to lack of presence and contacts in Indian government

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value addition
Value Addition
  • ¼ - aircraft “from the South”
  • Long-haul – segmented, highly competitive, well established, highly oligopolized (4 multis)
  • R&D – only element of IBSA cooperation
    • Market agreements, joint research, technological swaps
    • Only in defense and space – not aeronautics

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government involvement
Government Involvement
  • Skepticism
    • Do internationally what has not been done internally
  • Yet,
    • Project in defense and space
    • Financing at competitive rates and durations
    • Nationalization of segments
    • Intermediaries with foreign governments
    • Stimulate small enterprises in specific projects
    • Create special entity or regulatory agencies
  • Presidential visits: events, fairs and commercial visits, more beneficial

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threats
Threats
  • ¼ - IBSA cannot improve bargaining
  • ¾ - IBSA cannot replace the developed
  • ½ - IBSA cooperation – improbable
  • ½ - IBSA technology transfer feasible
  • ½ - IBSA technology transfer irrelevant

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ten conclusions
Ten Conclusions
  • Brazil’s sector integrated into the world
  • Little to gain in aeronautics
  • Cooperation only in defense and space
  • Long-haul is really a “long-haul” shot
  • India seen as very difficult for firms
  • Skepticism re. government initiatives
  • Better to nationalize world-class production
  • Government can support and mediate
  • IBSA cannot change the developed
  • IBSA cannot replace the developed

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